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tv   [untitled]    February 13, 2012 9:00am-9:30am EST

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sxk mr. speaker captions copyright national cable satellite corp. 2008 and just a week before the state of the union, the president rejected the keystone xl pipeline. well, that's a pipeline that is estimated to create tens of thousands of direct jobs, will facilitate oil production in north dakota and montana, will improve our nation's energy security. so it's my hope that congress will reverse the president's decision soon and get americans back on track to a more secure and prosperous future. so mr. burkhard, in your written testimony, you specifically talk to the issue of the denial of the permit for the proposed keystone xl pipeline. and you said that that raises the level of uncertainty regarding the long-term growth and disposition of major sources of world supply growth, including the canadian oil sands and the american onshore output. i wonder if you could expand on that, and specifically, with regard to u.s. oil production. >> sure.
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the canada, over the last decade, has become the most important source of foreign oil to the united states, by far. and the oil sands has been the principal reason for that. and so the oil sands are not just an important source of supply to the u.s. market, they have been a major source of global oil supply growth. in fact, if you look at the oil sands alone, the u.s. imports about as much oil, just from the oil sands, as we do from mexico or some other leading suppliers. the denial of the keystone permit does raise a question about the future pace of growth of oil sands production, and where it is sent. it is leading many canadian decisionmakers to put more effort into exploring potential export routes to the west coast of canada, which could open the asian oil market. the more immediate question, with regard to the keystone xl pipeline, is, there is, the u.s.
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midcontinent is the principal market for oil sands going into the united states, and that u.s. midcontinent, the midwest, is nearing a saturation point for the oil sands. there's only so many refineries in the midwest u.s. there's only so much crude oil from canada they can take. so to expand the reach of canadian oil into the u.s., you need a palestine to the u.s. gulf coast, which is the largest, most sophisticated refining center in the world. in fact, it's been an important source of export growth for the u.s. but this denial does raise an uncertainty about whether that growth will continue, as previously thought. >> thank you. dr. gruenspecht, i would like to ask you about diesel prices. in my home state of wyoming this weekend noticed that gallon of diesel is about a dollar higher than regular unleaded gasoline. it's my understanding that this difference can be attributed in part to a shortage of diesel in
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the suggest the upper plains. i know a lot of diesel is being shipped to north dakota to service some of the oil field work being done there. can you help me understand why diesel prices are so much higher than gasoline prices right now in wyoming? >> thank you. i couldn't specifically speak to wyoming without, you know, without doing some more research, but i do know that this issue of diesel and gasoline prices is a broader phenomenon. there may be special circumstances in wyoming. but really in part because of some of the issues we've been discussing, demand for the petroleum components of gasoline has been sort of depressed with fuel economy and a switch towards biofuels. the developing world is driving a lot of the increase, in the developing world, it's much more heavily oriented towards diesel than towards gasoline. the world mix, if you will, of products, is much more -- the demand growth is in the distillates, diesel and heating
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oil is affecting senator shaheen's constituents and me, personally, since we happen to be one of the few people in washington who uses heating oil. but it's that set of products, the differential between gasoline and heating oil is grown. heating oil is much higher and diesel is much higher than gasoline. that's driving some of these refinery changes, which refineries are profitable and which ones are not, that have been discussed. so a lot of these things do tie together. >> ambassador jones, my final question -- we just talked about global issues. i want to ask you about global coal demand. according to the iaea's world outlook, you say the importance of coal is the highest since 1971. port says for all the talk about natural gas and renewables, coal won the energy race in the first decade of the 21st century. it explains that globally coal is the most important fuel after oil and that coal is the backbone of global electricity
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generation, alone accounting for 40% of electricity output in 2010. will you elaborate on the importance of coal to china, india, and other developing countries? >> well, certainly. first of all, one statistic that you didn't mention in your resume, which is quite accurate, is that in that first decade, coal accounted for half of the world's growth in energy. it's truly an impressive performance. and why was this? this was largely the two countries you mentioned, china and india. where they have electrified their countries. they brought electricity service to literally hundreds of millions of people in recent years, who have never had electricity before. and a lot of that electricity was coal-fired electricity. at the same time, you know, china, in particular, has been wrestling with a growing pollution in its cities from these coal-fired power plants. and as a result, china is
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eagerly looking for alternatives. they are look at renewables and they are looking at natural gas. but, like in any country, a lot of the decisions that are taken in china on power are taken on economic basis and coal has been a cheap competitor. and has -- and that is why it has grown so rapidly. whether or not that will continue in the future is another question, especially now that china has aggressively decided to markedly expand their use of natural gas. but i do think that, and our projections show, that coal has a bright future as well. >> thank you. thank you, mr. chairman. >> thank you, senator shaheen. >> thank you, mr. chairman. and thank you to all of our witnesses for being here this morning. i think every one of you in your comments and projections talked about demand and how that's affecting energy projections for the future. you may be aware that senator portman and i have sponsored
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energy efficiency legislation that addresses a number of sectors of the economy here. can you talk about how energy efficiency is incorporated into your projections and what increased use of energy efficiency would do to your future projections? and dr. gruenspecht, if you want to begin. >> sure. energy efficiency is, obviously, plays a very big role in our projections. again, we, for instance, our economic growth projection for the next 25 years for the united states, i think it's on the order of 2.5%, plus or minus. and our growth in energy use is much slower than that. like half a percent a year. so, you know, energy efficiency plays a very important role in
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that. i have already indicated that in our reference case projection, we build in existing laws and policies, including final regulations, but not new ones, in response to a question from the chairman, i indicated that even one very important proposed, likely to become final, regulation, would have a significant impact. there are certainly other policies that, you know, might be implemented by policy makers, which you are and i am not, that would, you know, also have potentially have effect. so, yes, there's a lot of impact of energy efficiency in already, but our reference case is existing laws and policies, and so, i think i would leave it there. >> ambassador jones? >> yeah, we have a variety of scenarios. we have a scenario similar to the eia scenario that's based on existing policies. we also have a scenario that we call the new policy scenario, which is based on announced intentions or policies.
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and then we have a climate scenario, that is designed to limit global warming to 2 degrees centigrade. in all three of those scenarios, energy efficiency plays a very important role. in fact, we believe in looking at climate change and the need to restrict emissions of carbon dioxide, basically we think that energy efficiency alone, with currently available technologies, can lead to at least 50% of the emissions reductions we need, if we are going to produce -- or prevent global warming beyond 2 degrees centigrade. but, of course, energy efficiency isn't just important for the environment or for climate change, it's important for energy security. it's important for economic success as well. because the more efficiently you can use your resources, the more competitive you can be in the international market. the more efficiently you use
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your resources, the less of them you need, and therefore, the less dependent you have to be on imports of foreign energy. so energy efficiency is the one thing that we see that serves all of the objectives that are important to the iea, and we included in our models, we include in the base case scenario or the current policies, we include, you know, a relatively small improvement in efficiency. the two more aggressive policy scenarios, we see stronger growth in energy efficiency. and that makes a very big difference. and i can't everyone size too much how important we see energy efficiency for the world's energy future. and i want to distinguish this from conservation. conservation can be important in certain ways, but what i'm talking about is getting the same services for less. energy, rather than doing with less confers. >> thank you. and i'm not going to ask either of you about job projections since you've pointed out that's not under your purview, but i
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would just editorially point out that there are also a lot of jobs also created in energy efficiency. i don't know if mr. burkhard or mr. duwun, if either of you would like to add anything to what's been said. >> fuel economy standards, we already mentioned, those play a tremendous role in oil consumption in the future. and we're seeing higher fuel economy standards, not just in the u.s. but also europe and china, other markets. one more challenging aspect to the efficiency efforts are buildings and structures. cars on the road for maybe 12 years, a building can be around for 100 years. and encouraging, providing incentives for greater building efficiency could go a long ways. >> yes. mr. diwan. let me ask a very quick final question for dr. gruenspecht since you mentioned heating oil in the northeast. i personally am very concerned about pad one, as you pointed out. you talked about the refineries
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that are down on the east coast. can you talk about the correlation between that, if there is any, and what we're seeing in increased costs for home heating oil in the northeast. >> thank you. i don't think there's really much correlation. i describe the broader picture of gasoline and distillate and, you know, as senator brasso pointed out, distillate prices in wyoming are very high. i don't think this refinery issue this winter so far has been much of the issue. i would point out that in our -- we do a winter fuels outlook at the beginning of each winter. i think in october. and we did flag the, you know, the heating bills as being for oil users as being pretty significant. this upcoming winter -- >> right. >> -- and, you know, we've gotten a little bit of a break
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on the weather, and that's helped everybody, i think. it's come down a little bit, the projected expenditure increases. but i think we're still looking for the average heating oil user -- and it varies a lot depending on where you set your thermostat, where you are, how good your house is insulated, going back to energy efficiency, but still looking at $2,400, $2,300, you know, high as the winter fuel bills for heating oil households. and that's much higher than households using other fuels. >> yes, thank you very much. >> bad news travels fast. >> senator portman. >> thank you, mr. chairman. i really appreciate the testimony. i got a chance to read through some of it while i was waiting to ask the question that i missed earlier. this is actually, i think, a lot of good news today that we're hearing in terms of additional energy supplies. and i'm particularly heartened by the comments of ambassador jones and mr. burkhardt about
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efficiency because that's an issue where i think we can make huge progress. i'm one of those. and i won't necessarily associate my colleague and co-sponsor with this, but, you know, we need to produce more and also use less. and those are not inconsistent. but my colleague and i do work very hard on trying to promote efficiency. and as mr. burkhardt mentioned, a lot of this has to do with buildings. our focus is really manufacturing efficiency and buildings. and it's trying to deploy as ambassador jones said some existing technologies so we're not as much focused on even the innovative side, although we want to encourage that, and taking best practices in the united states has tremendous potential to even catch up with some other industrialized economies, namely japan and some of the european countries. and we can be more economically efficient and therefore help our economy by being more competitive and also, of course, as you said, we can use fewer imports by doing so.
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but we also need to produce more. and again, i think those two are not only not inconsistent, but i think they both help to create jobs and economic activity. again, i found looking at your testimony some very good news. mr. burkhardt, you talked about the fact that ihs global has now said that shale gas production has supported more than 600,000 jobs in 2010. they project 870,000 jobs by 2015. i think that's low. just based on what's happening in ohio where we have another projection showing another 200,000 jobs from utica alone during that time period which would account for almost all of that growth. so i think there's a lot of good news here. what is holding back the natural gas production and distribution, mr. burkhardt? >> well, the -- on the natural gas side, prices are quite low because of this revolution and
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shale gas production. but what we're seeing is more companies shift towards liquids or producing oil. and one of the factors that's influencing the pace of investment is the rise in costs, finding the right people, the right equipment. there's not a limitless supply. there's, in fact, a missing generation of folks in the petroleum industry because from about 1986 to earlier this decade, oil prices were low. the industry was consolidating. there weren't many people entering the industry at that time. and as prices have risen, oil prices have risen. and activity has picked up particularly in this country. there's been a great deal of pressure in finding the right people and getting the right equipment to the right places. so that's a significant challenge. >> so the testimony this morning, that's interesting, you all talked about the fact that because there is both wet gas and oil in some of the shale finds that that has encouraged people to go ahead and explore and extract even though the natural gas prices are
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relatively low. will that continue? i think of marcellus where maybe there's less of the wet gas or oil, but utica, maybe there's more. will that encourage more develop ment in some of those finds? >> yeah. >> mr. diwan. >> yes. we need to think about the u.s. gas market as an island. so if we oversupply, which we are right now and prices are low, on the oil side, we don't have the same issue. oil prices are already global. and at the present prices and the present taxation system in the united states, these barrels are very profitable. so we will see a continued development of liquid plays. and i think in the next two to five years, we'll have three or four new plays emerging just because of that price differential. >> mr. burkhard, when i asked you about what might hold it back, you talked about skills, personnel and just resources devoted to oil maybe taking away from natural gas, the price of natural gas. you didn't mention infrastructure, although in your testimony, you talked about that.
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request can you talk a little about what you see as some of the limitations on natural gas use and distribution because of our infrastructure challenges? >> well, one of the new really exciting developments in energy is the northeast from ohio, pennsylvania, that area becoming a significant gas producer and possibly oil producer as well. there weren't -- the u.s. pipeline system wasn't set up to ship gas away from those areas. it was shipping gas to those areas. so the challenge now is, you know, getting the right pipelines to the right places so that gas and liquids can be economically developed. what we're seeing is this great revival on the supply side. this great revival has showed -- illustrated that our infrastructure system, our pipeline system, whether we're talking about the midwest or the northeast has yet to catch up with this great revival.
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>> and you would add keystone to that as well as mr. diwan said earlier, there still is adequate capacity now, but soon there won't be. and that would limit as well some of the development of some of our north american resources. >> there is enough cross-border capacity for the next few years, probably maybe till around 2019. but the problem in the short term, say in the next one to two years, is saturation of the midwest refining market. there's only so much oil that refiners in the midwest can take from canada. so that's expanding the reach of canadian oil to other markets in the u.s., namely the gulf coast. >> the gulf coast is critical. >> listen, great testimony. thank you dr. gruenspecht and all of you. my time is up. we appreciate your continuing to give this committee good information. >> senator landrieu. >> thank you, mr. chairman. i really appreciate the testimony, as usual. it's very, very helpful as we try to direct our policies to
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respond to some of the changing reality. i'd like to submit first for the record a report that just came out from our greater new orleans inc. that talks about the hidden job loss along the gulf coast. a story that really, in my view, hasn't been told because the unemployment numbers after the mccondo spill have stayed relatively flat. employment and unemployment. but it's because of the shift from south louisiana to north louisiana with the shale plays. but in south louisiana, we still are experiencing tremendous downturn because of the slow permitting process. the deepwater plays are significant, but the shallow water drillers have really been hurt. and according, mr. chairman, to this report, which is really the hidden story of the mccondo spill and the, i thought, inappropriate moratorium, put down 41% of the respondents said they are not currently making a
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profit. these are the small oil and gas independent marine operators. 70% said they have dipped into their cash reserves. so they're not laying off their employees, but at great hardship to these small and independent businesses that are servicing an industry that the top line looks good, but there's a lot underneath. so i'd like to submit that for the record. >> we'll be glad to include that. >> secondly, in the report, supply rising in the west growth at risk in iraq, i think it's -- the page is not numbered, but this is in your report -- you all say that we have pencilled in an end to output losses in the gulf of mexico after the mccondo spill. and it's in the paragraph where you talk about the u.s. will lead the growth in liquids, et cetera. can you help us understand what the output losses in the gulf were after the mccondo spill?
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yes. >> yeah, i'm not sure that the report you're reading from is iaea, but maybe it is. >> i believe it's mr. diwan's report. >> yes, i'm sorry, mr. diwan. >> i can help you with your question anyway. >> let's get him and then we'll get you. thank you. >> well, delaying permitting has an impact on our projection for the deepwater output. and was the restart of the permitting process. now we are not seeing decline anymore, and we're seeing a flattening further out on the horizon. we passed the bottom of that forecast. >> but i'll say as the representative from the state that has the most besides texas of offshore drilling, it's been a very painful three years. and i know that senator portman talked about producing more. we've got to get the gulf back up and operating and producing. not only is it the home to
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tremendous opportunities for oil and gas both deep and shallow, but the refining capacity for the country is, in large measure, or a large part of it, and the pipeline system, which is much more robust than other pipeline systems there. so getting the gulf back up and operating, mr. chairman and ranking member, is important, and it's going to remain a priority. let me ask any of you to further discuss the significant increase in liquid fuel production because while climate is important and the environment is important, i'm really, and my constituents, are very concerned about the economic vitality of the united states going forward. the president talked about building an economy to last. people are very interested in making america more energy secure. you talked about the increase -- substantial increase in liquid fuels. could someone describe in a little bit more detail, are we
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talking about oil, or are we talking about biofuels? where is the growth potential there? and what about new fuels created from other agricultural or other scientific processes like algae, et cetera? does anybody want to comment on that? because the combination of increasing our liquid fuel production and decreasing our use through efficiencies and automobiles is extremely exciting because i think if i'm hearing what you're saying that we could have a major impact on not just job creation but on the economic security of the united states. am i reading too much into the possibilities here? starting with you, mr. diwan. >> yeah, actually, i think you're not reading enough into what we're saying. we all believe that actually the production of crude oil and natural gas liquid in the united states will grow tremendously over the next ten years. the technology is there now.
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the resources are there, and industry is investing to bring them up. so we're really talking about a major revival of the u.s. oil and gas industry. i don't think we really disagree on the magnitude even. so we all believe it's really the biggest thing happening in the oil and gas industry going forward. and the investments are available. the funds are available. we have, as jim described, issues in finding enough people, actually, and costs are rising because of that. that development, i think, limits also the growth of the other fuels outside of oil and natural gas liquids because we have such an abundance now. and so much to invest into that area that i think we all have limited growth in other fuels. and -- >> and we call them drop-in fuels, you know. alternative fuels that you can
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drop into the pipeline without having to redo all the pipelines. what are our most significant opportunities in drop-in fuels? go ahead. >> yeah. in the energy independence and security act of 2007, you know, congress enacted and the president signed a very ambitious mandate for increased use of biofuels. i think that's pretty challenging. right from the start it looked pretty challenging for us. the cellulosic biofulls in particular which is supposed to grow to 15 billion gallons by 2022, you know, we've always been fairly skeptical that you could actually get there, and the passage of time has not ameliorated that skepticism. but one of the things we do think of as -- there was a vision perhaps in some people's minds that a lot of that would be cellulosic ethanol.
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and we believe that a lot of that what is done which we think will be less than the full amount would be a drop-in, what we call biomass to liquids. a diesel-type fuel that unlike ethanol would go into the normal stream of commerce, if you will, as, you know, interchangeable with regular fuel. >> it doesn't require as much of a subsidy. and anything from you, ambassador jones? and thank you, mr. chairman. >> first of all, i agree with all of the comments that have been made. in terms of biofuels worldwide, all types of biofuels, we, in our world energy outlook, we saw them tripling between now and 2035. so that's probably a little bit more than 3% per year worldwide. in the united states. so they're fairly aggressive policies, although they
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fluctuate. and again, i agree that cellulosic biofuels are going to be a long time coming. ethanol is going to be the main source of biofuel, i think for some time, particularly sugar cane ethanol, which the brazilians are trying to spread their experience around the world in tropical climates. but other crops can also turn -- >> and one other thing i'd mention that's significant, the country, first mr. chairman and ranking member, issued its first permit to build an export facility for natural gas. the shanir company received its permit, and i helped to push that, and proud of it. i know there's a debate about whether we should keep the natural gas as an island. the problem is if you don't create a market for it, you get prices as low as they are today which is a disincentive to production. so you've got to figure out the right price point where you can get people to invest in natural gas which is a cleaner fuel, but also, you know, so opening up that export i think is the right thing to do.
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and i just want you all to say yes or no. do you agree with that or not? opening up exports for gas. yes or no. >> i don't think i'm allowed to have a position on that. >> okay, mr. jones, ambassador jones? >> yeah, we believe that trade should be more driven by the market. if the market -- if there's market demand for it, we don't think that there should be export restrictions. >> mr. burck burkhard? >> developments that foster and enhance global trade of energy makes for a more robust system. >> mr. diwan. >> i agree with them. >> thank you. >> senator murkowski, did you have additional questions? >> i do, mr. chairman. a couple follow-ups, one on iran sanctions, and then the second on the issue of reserves that i mentioned inop so let me start with the sanctions. and this is directed to you, mr. diwan. dealing with the potential additional impact of sanctions. we know that the europeans have

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